Questions and Answers

The following questions were asked recently by a new subscriber who is a newcomer to trading the eminis. We include them here because they may answer some of your own questions. If you have questions not answered here, please send us email, and we'll be glad to answer! Comments and questions by the subscriber are in purple, and the answers are in black.

I just don't have a basic grasp of how it works.  I guess I have a general idea, but I just stumbled upon the world of trading a few months ago, with no prior investing experience.  I have done a lot of research and learning, and will continue to do so.  I am fairly confident that I can make money using your services next week, but then a few questions arise, and I wait another day or two to fund my account.  

I was as uninformed as they come, I just recently learned what ES and ER represent! That's where I started: 

• What are E-Minis?
  E-Mini's are futures contracts that were created by the Chicago Mercantile Exchange (CME) and the CME site is a good place to start understanding them http://www.cme.com/edu/course/intro/index.html. ES is the S&P E-Mini futures contract, and ER is the Russell 2000 E-Mini futures contract.

• One tick is .25 points, correct? 
  The value of a tick varies depends on the futures contract being traded. For ES, a tick is .25 and for ER it is .10 point. These two contracts are traded via the Chicago Mercantile Exchange which lists its contract specifications online at http://www.cme.com/clearing/clr/spec/contract_specifications.html?type=idx . There are many other futures that we may trade as they become popular enough to provide liquidity for day trading.

• Selling is shorting and buying is going long? 
  Unlike stocks, future contracts have no underlying asset however your analogy of selling being equal to shorting and buying being long is essentially correct.

• Here's an example of one of your posts in the demo room:
  'ES 150 tick'  Buy 1290  target: 4 ticks   stop: 6 ticks   move target to 1 ticks if against 4 ticks
  Please explain exactly what this means.

In this example, consider this trade: enter a limit order to buy ES at 1290, the profit target would be 1291, and the stop loss would be at 1288.50 (1290 - (6 x.25)). If the trade went against us - meaning the price of ES went down instead of the expected up - by 4 ticks or one point, we would move our profit target to 1290.25.

• But what does 'ES 150 tick' mean?
  ES 150 tick is the name of the chart on which the strategy is running in TradeStation®. Each of the trade suggestions we make in the room is automatically posted from the strategy. We use a number of different charts with strategies running, and choose the chart that appears to be the most successful for the trading conditions existing at the time. So, just as we could use a chart with 5 minute bars, we can use a chart with 150 tick bars. 'ES 150 tick' is an ES chart with 150 tick bars.

• What is damage control?
  "Damage control" is our terminology for taking a small profit because the trade has not unfolded as expected. For example, using the same facts as in point 7, we buy ES at 1292.00 expecting it to go up to 1292.75 in a short time for a .75 scalp profit. Instead, ES declines 3 ticks to 1291.25 indicating our initial analysis may have been incorrect. In this case, we lower our profit target to 1 tick (1292.25) since that target is much more likely to be attained. We control the damage from price moving in the unexpected direction, exit with a small profit and wait for the next trade to set up.

• It seems impossible to get the order at the price that you specify, even with my new superfast computer!
  You should always be able to fill announced trades at the specified price if we fill. Partly this is so because we only announce fills if the price pierces the order — for example, if the order is to buy ES at 1290, we only announce a fill if the price came down to 1289.75, thus assuring all orders to buy at 1290 were in fact filled. But you must have your order placed for it to be filled! This is not so much a function of computer speed as it is proper advance setup of the order entry. Using the proper trading platform that will set your targets and stops when you enter a trade is imperative for our daytrading and scalping style of trading. Because there are sometimes 30 or more trades per day, it is important to have an efficient entry platform capable of bracketing trades. NinjaTrader is our favorite but StrategyRunner, TradeMaven, and IB's Bracket Trader offer similar functions. There may be others as well.

Using one of these will greatly simplify your trading. Using Ninja (which we dscribe here ans an example), you are able to "manage strategy templates" and "manage stop strategy templates" to predetermine stops and targets. For example, in the situation you described you could specify an initial profit target of 4 ticks and stop of 6 ticks on a SuperDom, right click and save that template under the name "ES 150". If we were using the ES 150 chart on a given day, your SuperDom in Ninja would be visible with the ES 150 strategy loaded. When the buy announcement you mentioned was made, you would click on 1290 in the "buy" column and Ninja would take care of the rest. Should the target move to damage control, you would simply left click on the original target of 1291 and move it down to 1290.25 with another left click. I only trade with Ninja and have never had trouble getting the order placed in a timely manner since it involves just one mouse click after the strategy is defined.

• When you say
  ! OUT ER +10 ticks
  ...does that mean get out of all your positions in ER?  How do you do this?
  "Out ER +10 ticks" means that the profit target on that trade was filled and we have exited all ER contracts at that target. Remeber, this happens automatically when your trading platform (in our example, Ninja) is set up to accommodate the trade - assume ER 150 tick for your example. As soon as you left click to buy ER at say 701.00 with Ninja set to the ER 150 strategy template, Ninja establishes the target at 10 ticks or 702 automatically. As soon as ER trades at or above 702, it will fill your target order and you will be out of that trade.

• When you say to SellShort at a target of 10 ticks, are we waiting for it to COME DOWN 2.5 points?
  Sell orders are accompanied by a price and suggest selling at the specified price. A 10 tick profit target is currently associated with ER only so the announcement might be to "Sell ER at 703.00" when ER was trading at say 702.6. You would enter an order your trading platform (again, Ninja, in our example) to sell at 703 and wait for a fill. If a fill does not occur fairly quickly (price is declining and never hits 703), another announcement might follow to "Sell ER at 702.50" which would just involve moving your entry price on the Ninja SuperDom down 5 ticks to 702.50 and waiting to see if the trade would fill at that price.

• Why when you say to buy at 1292.25 does it sometimes fill at 1292?
  Our actual fills sometime vary (favorably only) to the automatic strategy posted fill price. For example, a posting may be made to "Buy ES at 1292.25". We see the announcement at the same time as everyone else in the room but note that ES is trading at 1291.75/1292 (bid/ask) at the time the order is being placed in Ninja. In this case, we would buy at 1292 since that is favorable to the announcement (that is, we get into a long position at a lower price). Note that the automated strategy posts the fill price that everyone would be able to fill, and that we sometimes post our actual fill price as different than that if we get a better fill in our real life trading.

Things like this are all brand new to me.  Thank you very much for your help — see you next week in the room!

We appreciate your candor in wanting to understand the basics. Hopefully, participation in our demo room will help you avoid many of the costly errors we endured before discovering that there is no reason for each trader to reinvent the wheel.

Everyone starts out sometime, and everything needs to be clear, so please don't hesitate to inquire about anything that you don't understandr. If you have questions not answered here, please send us email, and we'll be glad to answer. Our goal is to trade successfully and help as many others as possible to do so also.